Low Reverse Mortgage Securities Production is the ‘New Normal’

The reverse mortgage industry is currently seeing the effects of the October 2 changes on loan production, and the trend has trickled down into the securities market.

Issuers of Home Equity Conversion Mortgage-backed securities (HMBS) saw production of new, original loan pools fall to just $401 million in April, according to the most recent calculation from New View Advisors, a drop from March’s “anemic” $419 million.

“For the foreseeable future, this low level of new production may be the new normal,” the New York City-based firm noted in its analysis. 

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For comparison, December 2017 saw HMBS issuers generate $747 million in new issuance, a number that dipped to $657 million in January and $604 million in February.

Prognosticators in the reverse mortgage industry had long predicted that the Department of Housing and Urban Development’s changes last fall — which included a reduction in principal limit factors and a change to the mortgage insurance premium structure — would bring hardship to the reverse mortgage industry.

Last month, industry trackers Reverse Market Insight released statistics showing that HECM originations had dropped 17.6% in February, and New View predicted a “long winter” ahead in its previous HMBS analysis for March. The firm’s attitude has not changed since.

“Reverse mortgage lenders face a prolonged period of reduced volume, primarily due to the new lower principal limit factors for Home Equity Conversion Mortgages effective this fiscal year,” New View observed. “The supply of recently originated unsecuritized HECMS originated at the old PLFs is essentially exhausted, allowing the full effect of the new PLFs to hit hard.”

The news wasn’t all bad. Buoyed by $542 million in seasoned loan pools, the industry actually saw overall HMBS issuance increase to $1.2 billion month-to-month, which New View pegs as the seventh-highest month ever. 

“The supply of highly seasoned, unsecuritized HECM loans is a rapidly melting iceberg, but it’s a big iceberg,” the company noted. “Fannie Mae still has about $25 billion in HECMs on its books, years after ceasing its HECM loan purchases.”

Written by Alex Spanko